Posts Tagged ‘self employment tax’

Last summer (2015) my 15 year old son mowed the church yard. He received a 1099-misc for $1800 last week. Does he need to file a tax return? I claim him on my taxes of course and no deductions were made from his pay last summer.

Yes, your son needs to file a tax return. He may not owe federal income tax on the $1,800, but he will owe self-employment tax of 15% on that money. Ouch!

It’s all covered in detail in my ebook, Teens and Taxes. For $5.00, you’ll get details on how to fill out his tax return correctly.

My ebook Teens and Taxes can be a big help to prepare you teenagers tax return. I explain taxes for teenagers in detail and even show you how a tax return should look on your teenager.

My 19 year old son received a 1099 misc income and Box 7 is filled (non employee compensation $1649.28) and taxes were not withheld.

Can I file this on my income tax since I still claim my son?

He is currently a full time college student and I pay all his college expenses. Would he need to file on his own?

-Melliam

Dear Melliam,

Do NOT add your son’s income to your tax return.

Your son needs to file his own tax return. He will report the income from the 1099MISC on Schedule C Business Profit or Loss. Your son was an independent contractor and the IRS sees him as a business owner.
He may not owe federal income tax, but he will owe self-employment tax at 13.3% of his net income. Sorry, but this is going to hurt! I estimate he’ll owe around $200.

I cover this is detail in my ebook Teens and Taxes including an example with the forms filled out.

I want to start my own small business selling crafts. What do I need to report?

Congratulations on living the American dream of being your own boss! You are considered self-employed and will pay two types of taxes: income tax and self-employment tax (called SE tax). SE Tax is the same as Social Security (FICA) and Medicare for self-employed people.

You will report all your income and expenses on an IRS form called Schedule C Profit or Loss from Business when you file a 1040. Many teens that have small businesses find that they do not owe federal income tax, but do owe self-employment tax (at 15.3% of their profits!).

Keep good records of everything you earn and everything you spend in your business. It is a good idea to talk to an accountant when you start your business. He or she will also be able to help you with issues like sales tax. Chapter 5 covers taxes for business owners.

BTW, the threshold to start paying self employment tax is $400. So if you made over $400 in profit from a micro business (like selling on eBay!), you need to file a tax return.

My ebookTeens and Taxes walks you through filling out a tax return for a teenage business owner. Order a copy today. Available for immediate download.

My son is a newspaper carrier who turned 18 in September. Does he now have to pay social security tax and federal on the whole years earnings or on the amount earned after he turned 18?

Anne

Anne,

Everything I read seems to point to age 18, which means he is exempt from Self Employment tax (Social Security and Medicare taxes) up until his birthday. Pay the Self Employment tax only on the earnings received after his 18th birthday.

When the IRS means “the year-end of the year a person turns 18,” they say so. In this case, they seem to mean the day a person turns 18.

Carriers and Vendors Under Age 18
Carriers or distributors (not including those who deliver or distribute to any point for subsequent delivery or distribution) and vendors (working under a buy-sell arrangement) under age 18 are not subject to self-employment tax.

Yes, newspaper carriers get special treatment from the IRS. Read more about it here.

Did you know that teenage newspaper carriers have special status with the IRS? Yes, they get a 15.3% tax break!

Newspaper carriers under age 18 do not have to pay self-employment tax. Self-employment tax is the same as Social Security and Medicare taxes for self employed people. It is approximately 15.3% of your net profit from your business.

Carriers and Vendors Under Age 18
Carriers or distributors (not including those who deliver or distribute to any point for subsequent delivery or distribution) and vendors (working under a buy-sell arrangement) under age 18 are not subject to self-employment tax.

I was interviewed by Kay Bell of Bankrate.com for her article “Teen jobs and tax issues”
Kay did a great job explaining taxes for teenagers.

Teen jobs and tax issues

By Kay Bell • Bankrate.com

Highlights

* Teens who earn less than $5,700 may not have to withhold tax money.
* But self-employed teens or contractors likely have to pay SE taxes.
* Some teen jobs are exempt from SE taxes, like babysitting, lawn mowing.

A summer job is a classic rite of passage for teenagers. But teen jobs can be a source of aggravation for young workers and their parents who aren’t prepared to deal with the potential taxes.

When it comes to income, the IRS generally wants its cut regardless of the earner’s age. But some special tax rules apply to young workers, based not only on age, but also on amount of money earned and even the type of job.

First, the good news: The teen worker might not owe the IRS a dime.

A youngster who is a dependent of another taxpayer generally doesn’t have to file an income tax return unless the youth makes more than the standard deduction amount for a single filer. For 2010 returns, that’s $5,700.

If a young person doesn’t expect to earn more than the threshold amount, he or she needs to note line 7 when filling out a W-4 at the summer workplace. That’s where the teen might be able to claim exemption from federal income tax withholding.

In fact, novice workers should pay close attention to all employment paperwork. It could dramatically affect their tax responsibilities.

“Sometimes teens go out and work as technical employees, but are paid as contractors,” says Sharon Lechter, a CPA in Paradise Valley, Ariz., and member of the President’s Advisory Council on Financial Literacy. “So make sure the employer classifies you correctly.”

Pushing the worker categorization boundaries is appealing to some companies who then don’t have to deal with various tax withholdings and potential employee benefit payments. And young workers looking to pocket as much cash as possible each payday might think such an arrangement advantageous, too.

But being a contractor poses new, and costly, tax concerns.

Contactor tax complications

If paid as a contractor, which means earnings are reported to the worker and the IRS on a Form 1099-MISC rather than a W-2, the youth is for tax purposes self-employed.

That designation means that even if the young worker doesn’t earn enough to owe federal income taxes, he or she could owe Uncle Sam self-employment, or SE, taxes.

This is the 15.3 percent tax on earnings that is the self-employed equivalent to Social Security and Medicare payroll taxes withheld from employees’ checks and usually noted as FICA on pay stubs. That tax is required when any self-employed worker’s net earnings exceed $400.

“There is no special tax treatment for teenagers running their own business,” says Carol Topp, a Cincinnati CPA who is also the founder of TeensAndTaxes.com. “If you make a profit of more than $400, you must pay self-employment.”